10.

Branch Accounts

Classification of Branches: From an accounting point of view, branches are classified as:
















In case of (A)(I)(a)(i):
Accounting Entries in the books of Head Office (H.O.):
No. Particulars Debit Credit
1. For Cost Price of Goods sent to Branch:
Branch Stock A/c Dr
To Goods Sent to Branch A/c
XXX

XXX
2. For Cost Price of Goods returned by Branch:
Goods Sent to Branch A/c Dr
To Branch Stock A/c
XXX

XXX
3. For remittance to Branch for expenses:
Branch Cash A/c Dr
To Bank A/c
XXX

XXX
4. For cash sales at Branch:
Bank A/c [(or) branch cash, if money is not
immediately remitted] Dr
To Branch Stock A/c

XXX



XXX
5. For credit sales at Branch:
Branch Debtors A/c Dr
To Branch Stock A/c
XXX

XXX
6. For Goods returned to Branch by customers:
Branch Stock A/c Dr
To Branch Debtors A/c
XXX

XXX
7. For Cash collected from Branch Debtors:
Bank A/c [(or) branch cash, if money is not
immediately remitted] Dr
To Branch Debtors A/c

XXX



XXX
8. For Discount & Allowances to Debtors & Bad Debts:
Branch Profit & Loss A/c Dr
To Branch Debtors A/c

XXX



XXX
9. For remittances to Head Office:
Bank A/c Dr
To Branch Cash A/c
XXX

XXX
10. For Branch expenses:
Branch Expenses A/c Dr
To Bank A/c
(or branch cash, if met by branch)

XXX


XXX
11. For Purchase of any Fixed Asset at Branch:
Branch Asset A/c Dr
To Bank A/c
(or branch cash, if paid for by the branch)

XXX


XXX
12. For Depreciation on Branch Assets:
Branch Profit & Loss A/c Dr
To Branch Assets A/c

XXX


XXX
13. For abnormal Loss and Goods:
Branch Profit & Loss A/c (or) Dr
Insurance Claim A/c (if covered Insurance) Dr
To Branch Stock A/c

XXX
XXX



XXX

Ledger Accounts and their details:
Branch Stock A/c: Value of opening stock is shown as opening balance on the debit side
of Branch Stock A/c. Similarly, value of closing stock is shown as closing balance on the
credit side of Branch Stock A/c. The balance of Branch Stock A/c will now represent Gross
Profit/Loss at the branch to be transferred to Branch Profit and Loss A/c.
Branch Expenses A/c: The balance of Branch Expenses A/c will also be transferred to
Branch Profit & Loss A/c.
Branch Debtors A/c: The balance of this Account represents the closing Debtors.
Goods sent to Branch A/c: The balance of this account should be t/s to Purchase A/c.
Branch Profit & Loss A/c: The balance of Branch Profit and Loss A/c will represent Net
Profit/Loss at the branch to be transferred to General Profit and Loss A/c.
Note: Normal Loss need not be recorded separately.

In case of (A)(I)(a)(ii): Under this method it is assumed that the branch has a separate
entity apart from the head office and, on this basis, a branch account is opened separately
for each branch in the books of head office. This account is debited with the value of
benefits and cash given to the branch and correspondingly credited with the value of
benefits and cash received from the branch.
Branch A/c
Particulars Rs. Particulars Rs.
To Balance b/d
Branch Stock XXX
Branch Debtors XXX
Branch Petty Cash XXX
To Goods sent to branch
To Bank
(Amount remitted to branch)
To Bank
(Branch Exp.s paid by H.O.)
To General P & L A/c



XXX
XXX
XXX

XXX

XXX
By Bank
(Amount remitted by Branch)
By Goods sent to Branch
(Return to H.O)
By Balance c/d:
Branch Stock XXX
Branch Debtors XXX
Branch Petty Cash XXX
XXX

XXX





XXX
XXX XXX
In case of (A)(I)(b&c)(i):
Accounting Entries in the books of Head Office: Under this system, in addition to the
accounting entries passed in case of invoicing goods at cost price, the following entries are
passed:
No. Particulars Amount Rs.
1. For Goods sent to Branch:
a. Branch Stock A/c Dr
To Goods Sent to Branch A/c

Invoice price

Load on goods sent b. Goods Sent to Branch A/c Dr
To Branch Stock Adjustment A/c
2. For Goods returned by Branch to H.O.:
a. Goods Sent to Branch A/c Dr
To Branch Stock A/c

Invoice price

Load on goods returned b. Branch Stock Adjustment A/c Dr
To Goods Sent to Branch A/c

Ledger Accounts and their details:
a. Branch Stock A/c: There will be an opening balance in this account representing
opening stock at branch at selling price and a closing balance representing closing stock at
branch at selling price. After all the relevant entries have been passed to this account as
already detailed, both sides of this account should agree. Any difference represents surplus
or deficiency of stock and will be transferred to a stock discrepancy account. The stock
discrepancy account will be closed by transferring the load to branch stock adjustment
account and the balance to branch profit & loss A/c.
b. Branch Stock Adjustment A/c: This account will be created with the Stock Reserve A/c
for the loading included in the opening branch stock (at selling price). Similarly, this account
is debited with the Stock Reserve A/c for loading included in the closing branch stock. The
difference remaining in this account (after all the relevant entries have been passed)
represents gross profit/loss at branch and will be transferred to branch Profit & Loss A/c.
c. Loss of Goods: This will be treated in the following manner:
Normal Loss: Since branch stock adjustment account discloses gross profit, normal loss
should be charged to this account by the following entry:
1. Branch Stock Adj. A/c Dr
To Branch Stock A/c
Selling Price
Abnormal Loss: The following entries will be passed for recording abnormal loss:
1. Abnormal Loss A/c Dr
To Branch Stock A/c
Selling Price
2. Branch Stock Adj. A/c Dr
To Abnormal Loss A/c
Load on goods lost
3. Branch Profit & Loss A/c Dr
To Abnormal Loss A/c
Cost price of goods lost
If the goods are insured, insurance claim account will be debited instead of branch Profit &
Loss A/c to the extent of claim admitted and the balance will be debited to branch profit &
loss A/c.

In case of (A)(I)(b&c)(ii):
Accounting Entries in the books of Head Office:
The branch account will be prepared on the same line as discussed earlier, but as goods
are supplied to the branch at loaded price. (1) Opening stock, (2) goods sent to branch, (3)
goods returned by branch and (4) closing stock will be recorded in the branch account at
this price. Hence, in order to ascertain the true profit or loss at branch it will be necessary to
eliminate the loads and bring down these items to cost level.
For this purpose the following adjusting entries will be made:
1. For load on Goods sent to Branch:
Goods Sent to Branch A/c Dr
To Branch A/c

XXX


XXX
2. For load on Goods returned by Branch to H.O.:
Branch A/c Dr
To Goods Sent to Branch A/c

XXX


XXX
3. For load included in the Opening Stock:
Stock Reserve A/c Dr
To Branch A/c

XXX


XXX
4. For load included in the Closing Stock:
Branch A/c Dr
To Stock Reserve A/c

XXX


XXX
The balance of stock reserve account at the end of each year will be carried forward to the
next year for being transferred to the branch account of that year as shown in item (3)
above.

Distinction between Wholesale Profit & Retail profit at Branch:
In order to know whether self-retailing through branches is more profitable than wholesaling,
it is necessary to make a distinction between wholesale profit and retail profit. The true profit
of a branch can, therefore, be determined by charging it with the wholesale price of goods
sent and crediting the head office trading account with the same amount. Since closing
stock of branch, in such a case, will be valued at wholesale price it will be necessary to
create a provision for unrealised profit on stock by debiting the head office Profit & Loss A/c.
For E.g.: Let the cost of an Article be Rs.100, wholesale price be Rs.140 and retail price be
Rs.150. If it is market rate is through a detail branch, the profit earned there will be Rs.50.
But the true profit of the branch is, however, Rs.10 only, because Rs.40 could have been
earned even without having the branch i.e. by selling it on wholesale basis to others.

In case of (A)(II) (Independent Branches):
Part: I Special Adjustments:
1. Regarding Goods-in-transit & Remittance-in-transit:
1. I f adjustment is made in the books of H.O.:
Goods-in-transit A/c Dr
Cash-in-transit A/c Dr
To Branch A/c

XXX
XXX



XXX
2. I f adjustment is made in the books of branch:
Goods-is-transit A/c Dr
Cash-in-transit A/c Dr
To Head Office a/c

XXX
XXX



XXX
In the balance sheet, goods-in-transit or cash-in-transit will be shown as assets. At the
commencement of the next financial year, these entries will be reversed and Transit A/c will
be closed.
2. Regarding Depreciation on Fixed Assets: Often, the accounts of fixed assets of a
branch are maintained in the head office books. In such a case,
1. Entry for depreciation in H.O. Books:
Branch A/c Dr
To Branch Fixed Assets A/c
XXX

XXX
2. The branch passes the following entry in its own
books for Depreciation:
Depreciation A/c Dr
To Head Office A/c

XXX



XXX
Any purchase of fixed assets by the branch, in such a case, should be debited to head
office account and credited to bank (or Suppliers A/c) in the branch books. Similarly, in
head office books the same should be debited to branch fixed assets account and credited
to Branch A/c.
3. Regarding Inter-Branch Transactions: Where there are number of branches, inter-
branch transactions are likely to take place, e.g., cash or goods sent by one branch to
another or expenses incurred by one branch on behalf of another. Such transactions are
usually adjusted assuming that they were entered into under the instructions from the H.O.
Suppose Kolkatta branch transfers some goods to Mumbai branch under the directions of
the H.O. The entries will be as follows:
1. I n the books of Kolkatta Branch:
Head Office A/c Dr
To Goods Supplied to Branch A/c
XXX

XXX
2. I n the books of Mumbai Branch:
Goods received from Branches A/c Dr
To Head Office A/c
XXX

XXX
3. I n the books of Head Office:
Mumbai Branch A/c Dr
To Kolkatta Branch a/c
XXX

XXX
Note: Inter-branch transactions without the knowledge of head office may be passed as
between the branches only in the usual manner.
4. Regarding Charges made by H.O.: The head office may make a charge to the branch
for services rendered by it, or for a portion of head office overheads applicable to branch
management on the principle that the branch should be debited with all relevant expenses
and charges applicable to it.
1. I n head office books the entry will be:
Branch A/c Dr
To The Relevant Expenses A/c
XXX

XXX
2. I n Branch books the entry will be:
The Relevant Expenses A/c Dr
To Head Office A/c
XXX

XXX
5. Remittances A/c: Sometimes the branch remits cash to the head office quite frequently.
In such a case, the head office finds it convenient to open a branch remittances account.
The periodical total of this account will be transferred to the credit of branch account. If the
branch so desires, it can also open a remittances to head office account the periodical total
of which will be transferred to the debit of head office account. Similar treatment can be
made for goods sent to branch also.

Part II Closing of Branch Books:












Explanation: At the end of each financial year the branch prepares a trial balance and
proceeds to close its books of accounts. The subject of closing the books consists of two
activities: (a) Closing of Revenue accounts; (b) Closing of Asset & Liability accounts.
Closing of Revenue Accounts: Two different methods may be applied for closing the
revenue accounts.
First method: Under this method the branch simply transfers the individual balance of
various revenue accounts to the H.O. A/c, thereby closing the revenue accounts. The
entries will be as follows:
1. For debit balances of revenue items:
Head Office A/c Dr
To Sundry Revenue A/c
XXX

XXX
2. For credit balances of revenue items:
Sundry Revenue A/c Dr
To Head Office A/c
XXX

XXX
Second method: Under this method, the branch prepares its own Trading and Profit &
Loss A/c and transfers only the Net Profit or Loss (instead of all the revenue balances) to
the H.O. A/c in the same way as Profit or Loss is transferred to Capital A/c in an ordinary
business. The revenue accounts are thus closed, and the Profit or Loss transferred to the
H.O. A/c.
Closing of Asset & Liability Accounts: The balances of Assets & Liabilities may or may
not be transferred to the H.O. books. If it is decided to transfer them, the under mentioned
entries will be passed to close the accounts in the branch books:
1. For Assets:
Head Office A/c Dr
To Sundry Asset A/c
XXX

XXX
2. For Liabilities:
Sundry Liability A/c Dr
To Head Office A/c
XXX

XXX
After such transfer, the H.O. A/c in branch books will have no balance.
Note:
At the commencement of the next accounting period it is necessary to restore the balance
of Assets & Liabilities in the branch books by passing a reverse entry.
If, however, these are not transferred, there will remain a balance in H.O. A/c equal to the
net assets (i.e. assets less liabilities). Thus, in this case, the branch may prepare a Balance
Sheet.

Part III Incorporation of Branch Trial Balance in H.O. Books:



















Explanation: The branch sends its trial balance (together with its trading and P & L A/c and
Balance Sheet, if these are prepared by the branch) to the H.O. for incorporation in H.O.
books. When the H.O. receives the branch Trial Balance, it proceeds to incorporate the
same in its books. The incorporation procedure may be broken up into two
parts: (a) Incorporation of revenue accounts of branch and (b) Incorporation of assets and
liabilities of branch.
Incorporation of Revenue Accounts: This can be done in two different methods:
First method: Under this method, a Trading and Profit & Loss A/c of the branch is prepared
by H.O. The entries to be passed are as follows:
1. For items which will appear on the debit side of
Trading A/c:
Branch Trading A/c Dr
To Branch A/c

XXX



XXX
2. For items which will appear on the credit side of
Trading A/c:
Branch A/c Dr
To Branch Trading A/c


XXX



XXX
3. For Gross profit made by branch:
Branch Trading A/c Dr
To Branch P & L A/c
XXX

XXX
4. For items which will appear on the debit side of P &
L A/c:
Branch P & L A/c Dr
To Branch A/c

XXX



XXX
5. For items which will appear on the credit side of
Trading A/c:
Branch A/c Dr
To Branch P & L A/c


XXX



XXX
6. For Net Profit made by the branch:
Branch P & L A/c Dr
To General P & L A/c
XXX

XXX
Second method: Under this method, Branch Trading and Profit & Loss A/c is prepared in
H.O. books which is merely a Memorandum A/c, and therefore, the entries made in this
account do not have any double entry effect. The only object of this Memorandum A/c is to
ascertain the net profit/loss of the branch. This net profit/loss is incorporated (and not the
individual balances as in the first method) in the head office books by the following entry:
1. I n case of Net Profit:
Branch A/c Dr
To General Profit & Loss A/c
XXX

XXX
2. I n case of Net Loss:
General Profit & Loss A/c Dr
To Branch A/c

XXX


XXX
Incorporation of Assets & Liabilities: The head office may or may not be incorporate the
Assets & Liabilities of the branch. If incorporated the following entries shall be necessary:
1. For Branch Assets:
Sundry Branch Asset A/c Dr
To Branch A/c
XXX

XXX
2. For Branch Liabilities:
Branch A/c Dr
To Sundry Branch Liability A/c
XXX

XXX
After such incorporation of Assets & Liabilities, the Branch A/c (in which adjustment entries
have already been posted) in H.O. books will be closed.

Note:
4 At the commencement of the next accounting period, the entries passed for incorporation
of Assets & Liabilities will be reversed, and then the Branch A/c will again be restored
showing the opening balances of these items.
4 If the Branch Assets & Liabilities are not incorporated, the Branch A/c in H.O. books will
have closing balance equal to net assets of the branch.
4 While preparing a Balance Sheet of the H.O. all the Assets & Liabilities of the H.O. and
those of the branch will be taken into consideration.

FOREIGN BRANCHES

Introduction: A Foreign branch usually maintains a complete set of books under double
entry principles. So, the accounting principles of a Foreign Branch will be the same as those
applying to an Inland Branch. Before a Trial Balance of the Foreign Branch is incorporated
in the H.O. books, it has to be converted into home currency.
Rules for conversion: In case of fluctuating rates of exchange, the following rules for
conversion are applied:
No Nature of Account Exchange Rate Applicable
1.
2.
3.
4.
5.

6.
7.


8.
Fixed Assets
Fixed Liabilities
Current Assets & Liabilities
Remittances sent by the branch
Goods received from H.O. as well as
goods returned to H.O.
The Nominal A/cs (except next two)
Depreciation on Fixed Assets


Opening and Closing stocks
Rates ruling at the time they were acquired.
Rates ruling as on the date of the Trial Balance.
Rates ruling as on the date of the Trial Balance.
At the actual rates at which they were made.
At the rates ruling on the date of dispatch or the date
of receipt.
Average rate ruling during the accounting period.
Rate of conversion applicable in case of the
particular asset concerned [as indicated in (a)
above].
Rates ruling of on the opening and closing dates

9.

Balance in H.O. A/c
respectively.
Value at which the Branch A/c appears in H.O.
books on the date.
Difference in Exchange: As a result of conversion of branch trial balance in home
currency, a difference in the trial balance is will often arise. If a loss (Dr.) results, it should
be debited to Profit & Loss A/c, if a profit (Cr.) results, the prudent course is to credit it to an
exchange Reserve A/c so as to provide for future losses on exchange.



Problem 1: The Empire Stores Ltd. invoice goods to their various branches at cost and the
branches sell on credit as well as for cash. Form the following details relating to the Mumbai
branch, prepare the necessary accounts in the head office books:
Particulars Amount Particulars Amount
Debtors, 1st January, 2001
Debtors, 31st December, 2001
Cash Balance, 1st January, 2001
Stock, 1st January, 2001
Stock, 31st December, 2001
Goods received from head office
Cash received from head office
Goods returned to head office
Cash sales
Credit sales
26,200
33,100
300
15,000
13,900
50,800
1,500
700
33,500
60,000
Allowances to customers
Returns from customers
Discount allowed to customers
Bad debts
Remittance to head office
Rent and rates
Wages and salaries
General trade charges
Normal loss of goods due to wastage
Abnormal loss of goods due to pilferage
320
580
2,400
600
74,900
1,800
6,000
1,300
1,200
3,000
Problem 2: During the year ended 31st December, 2001 X & Co. of Chennai sent to their
branch at Mumbai goods costing Rs.1,00,000. They used to invoice to the branch at a price
designed to show a gross profit of 33.33% on invoice price. Collections at the branch from
debtors amounting to Rs.26,390 were all sent to head office. Branch transactions during the
year were:
Particulars Amount
Cash sales
Credit sales
Goods returned by customers
Goods returned to H.O. (Invoice Price)
1,21,050
27,600
300
780
Particulars 31.12.00 31.12.01
Stock (at invoice price)
Sundry debtors
2,250
1,320
2,700
2,230
Goods at the branch of Rs.1,260 (invoice price) were lost. Insurance company paid Rs.730
on the claim. Branch expenses, paid by head office, amount to Rs.36,780. Show the
necessary Ledger Accounts as would appear in the head office books recording the above
transactions relating to the branch including branch Profit & Loss A/c.

Problem 3: T of Calcutta has a branch at Dibrugarh. The branch does not maintain
separate books of accounts. The branch has the following assets & liabilities on 31st
August, 2003 and 30th September, 2003:
Particulars 31st August
2003
30th September
2003
Stock of tea
Advance to suppliers
1,80,000
5,00,000
1,50,000
4,50,000
Bank balance
Prepaid expenses
Outstanding expenses
Creditors for purchases
75,000
10,000
13,000
3,00,000
1,00,000
12,000
11,000
To be ascertained.
During the month, Dibrugarh branch:
a. Received by electronic mail transfer Rs.10,00,000 from Calcutta head office;
b. Purchased tea worth Rs.12,00,000;
c. Sent tea costing Rs.12,30,000 to Calcutta, freight of Rs.80,000 being payable at the
destination by the receiver;
d. Spent Rs.25,000 on office expenses;
e. Paid Rs.3,00,000 as advance to suppliers;
f. Paid Rs.6,50,000 to suppliers in settlement of outstanding dues.
In addition, T informs you that the Calcutta office had directly paid Rs.3,50,000 to discharge
suppliers by cheques drawn on bank accounts in Calcutta during month.
T informs you that for the purpose of accounting, Dibrugarh branch is not treated as an
outsider. He wants you to write the detailed accounts relating to the transactions of the
Dibrugarh branch as would appear in the books of Calcutta head office.

Problem 4: Premier Company has two branch shops at Shyam bazar and at Tollygunge
each with a separate manager. The ratio of gross profit to selling price is constant at each
shop at 25% throughout the year to 31st March, 2002.
Each branch manager is entitled to a commission of 10% of the net profit earned by his
branch, calculated before charging his commission, but subject to a deduction from such
commission equal to 25% of any ascertained deficiency of the branch stock. All goods were
supplied by the head office to branches. From below information, calculate the commission
due to each manager for 2001-2002:
Particulars Shyambazar Tollygunge
Stock at 1.4.01 at cost
Goods to branches at cost
Sales
Drawing of commission on account by managers
Chargeable expenses
Stock at 31.3.02 at selling price
18,684
72,420
90,320
600
12,280
30,832
12,484
43,480
58,560
400
9,020
15,952

Problem 5: Bengal Trading Co., with its head office in Kolkata, invoiced goods to its branch
at Mumbai, at 20% less than the catalogue price which is cost plus 50%, with instructions
that cash sales were to be made at invoice price and credit sales at catalogue
price less discount at 15% on prompt payment. From the following particulars available from
the branch, prepare the necessary Accounts and Branch Trading and Profit & Loss A/c for
the year ended 31st March, 2002 in the head office books so as to show the actual profit or
loss of the branch for the year:
Particulars Amount
Stock on 1st April, 2001 (invoice price)
Debtors on 1st April, 2001
Goods received from head office (invoice price)
Sales (cash)
Sales (credit)
Cash realised from debtors
Discount allowed to debtors
12,000
10,000
1,32,000
46,000
1,00,000
85,635
13,365
Expenses at the branch
Remittance to head office
Debtors on 31st March, 2002
Cash in hand on 31st March, 2002
Stock on 31st March, 2002 (invoice price)
6,000
1,20,000
11,000
5,635
15,000
Provision should be made for discount to be allowed to debtors as on 31st March, 2002, on
the basis of the years trend of prompt payment.

Problem 6: Buckingham Bros, Bombay have a branch at Nagpur. They sold goods at cost
to their branch at Nagpur. However, direct purchases are also made by the Branch for
which payments are made at head office. All the daily collections are transferred from the
Branch to the head office. From the following prepare Nagpur branch account in the books
of head office:
Particulars Amount Particulars Amount
Opening Balance on 1.1.90:
Imprest cash
Sundry debtors
Stock: Transferred from H.O.
Direct Purchases
Cash sales
Credit sales
Direct purchases
Returns from customers
Goods sent to branch from H.O.
Transfer from H.O. for petty exp.

2,000
25,000
24,000
16,000
45,000
1,30,000
45,000
3,000
60,000
4,000
Bad debts
Discount to customers
Remittances to H.O.
(received by H.O.)
Remittances to H.O.
(not received by H.O. so far)
Branch exp. directly paid by H.O.
Closing Balance (31-12-90):
Stock: Direct purchases
Transfer from H.O.
Debtors
Imprest cash
1,000
2,000

1,65,000

5,000
30,000

10,000
15,000
?
?
Also find out the profit by preparing the Profit & Loss A/c (Branch).

Problem 7: Arnold Ltd. Delhi trades in Ghee and oil. It has a branch at Lucknow. The
company despatches 25 tins of oil @ Rs.1,000 per tin and 15 tins of Ghee @ Rs.1,500 per
tin on 1st of every month. The Branch incurs some expenditure which is met out of its
collections this is in addition to expenditure directly paid by H.O. Following are the other
details:
Particulars Delhi Lucknow
Purchases:
Ghee
Oil
Direct exp. paid by H.O.
Sales:
Ghee
Oil
Collection during the year
(including cash sales)
Remittance by branch to H.O.

14,75,000
29,32,000
3,83,275

18,46,350
27,41,250

---
---

---
---
14,250

3,42,750
3,15,730

6,47,330
6,13,250
Particulars Delhi Lucknow
1.1.03 31.12.03 1.1.03 31.12.03
Stock:
Ghee
Oil

1,50,000
3,50,000

3,12,500
4,17,250

17,000
27,000

13,250
44,750
Debtors
Cash on hand
Furniture & Fittings
Plant & Machinery
7,32,750
70,520
21,500
3,07,250
---
55,250
19,350
7,73,500
75,750
7,540
6,250
---
?
12,350
5,625
---
4 Additions to Plant & Machinery on 1.1.03 Rs.6,02,750.
4 Rate of Depreciation: Furniture & Fittings @ 10%, Plant & Machinery @ 15% (already
adjusted in the above figures).
4 The Branch Manager is entitled to 10% commission after charging such commission
whereas, the General Manager is entitled to 10% commission on overall company profits
after charging such commission. General Manager is also entitled to a salary of Rs.2,000
p.m. General expenses incurred by H.O. Rs.24,000.
Prepare Branch A/c in the H.O. books and also prepare the company's Trading and P&L
A/c (excluding branch transactions).

Problem 8: Bipani Ltd. of Mumbai has a branch at Nasik. The branch does not maintain
accounting books and all the collections of the branch are remitted to head office. The head
office reimburses the expenses of the branch. Goods are invoiced to the branch at selling
price which is cost plus 25% and the branch is not entitled to vary this price. From the
following information prepare Branch Accounts in the books of head office:
Particulars Opening
Rs.
Closing
Rs.
Balances at branch:
Stock
Debtors
Cash

5,000
3,200
400

?
?
400
Transactions during the year:
Particulars Rs.
Goods sent to branch
Goods returned to head office
Credit sales at branch
Cash sales at branch
Cash received from customers at branch
Bills receivable accepted by customers at branch
Cash sent to branch for expenses
Shortage in stock at branch
Discount allowed to branch customers
40,000
2,000
32,000
8,000
28,000
2,000
4,800
500
320
Problem 9: The Head Office sends goods to Branch @ 20% profit on cost, freight and
duties amounting to 10% on invoice value being paid by branch. Branch sells at 20% G.P.
on selling prices. The stock taking date is 31-12-2002, but stock was taken on 10-1-2003.
The price for stock was agreed to be the cost to head office to be increased by actual
expenses incurred by the Branch less Rs.6,000. Stock on 10-1-2003 (at Branch cost)
amounted to Rs.64,600. Rs.6,000 stock (invoice value) was received from H.O. after 31-12-
2002 but before 10-1-2003. Sales in this period amounted to Rs.10,000.
Ascertain the selling price of stock as on 3-12-2002.

Problem 10: The Head Office passes adjustment entry at the end of each month to adjust
the position arising out inter-branch transactions during the month. From the following Inter-
branch transaction in January 2003, make the entry in the books of H.O.:
A. Mumbai Branch:
a. Received Goods Rs.6,000 from Kolkatta Branch, Rs.4,000 from Patna Branch.
b. Sent Goods of Rs.10,000 to Patna, Rs.8,000 to Kolkatta.
c. Received B/R Rs.6,000 from Patna.
d. Sent Acceptance Rs.4,000 to Kolkatta, Rs.2,000 to Patna.
B. Chennai Branch (apart from the above):
a. Received Goods Rs.10,000 from Kolkatta, Rs.4,000 from Mumbai.
b. Cash Sent Rs.2,000 to Kolkatta Rs.6,000 to Mumbai.
C. Kolkatta Branch (Apart from the above):
a. Sent Goods to Patna Rs.6,000.
b. Paid B/P Rs.4,000 to Patna, Rs.4,000 cash to Patna.

Problem 11: New Textiles ltd. operates a number of retail shops to which goods are
invoiced at wholesale price which is cost plus 20%. Shops sell the goods at the list price
which is wholesale price plus 10%. From the following particulars ascertain the profit or loss
for 2003 at Shop No. 143:
Particulars Amount
Stock at shop on 1st January, 2003
Goods invoiced to shop during 2003
Sale at the shop during the year
Goods destroyed by accident (retail value)
Expenses at the shop
15,000
1,40,000
1,54,770
660
7,200

Problem 12: Rahul Limited operates a number of retail outlets to which goods are invoiced
at wholesale price which is cost plus 25%. These outlets sell the goods at the retail price
which is wholesale price plus 20%. Following is the information regarding one of the outlets
for the year ended 31.3.2003:
Particulars Amount
Stock at the outlet 1.4.2002
Goods invoiced to the outlet during the year
Gross profit made by the outlet
Goods lost by fire
Expenses of the outlet for the year
Stock at the outlet 31.3.2003
30,000
3,24,000
60,000
?
20,000
36,000
You are required to prepare the following accounts in the books of Rahul Ltd. for the year
ended 31.3.2003: Outlet Stock A/c, Outlet Profit & Loss A/c and Stock Reserve A/c.

Problem 13: Following is the trial balance of Jaipur Branch as on 30-6-2002:
Particulars Rs. Rs.
Furniture
Cash at bank & in hand
Office expenses
Rent
Debtors and Creditors
Salaries
Goods supplied to H.O.
Sales
Goods received from H.O.
Purchases
Stock, 1st July, 1991
1400
1780
470
960
3700
1500
---
---
8000
48800
6000
---
---
---
---
1850
---
6000
38000
---
---
---
H.O. account 3240 ---
Closing stock was valued at 2,700. The Branch A/c in the H.O. books on 30th June, 2002,
stood at Rs.460 (Dr.). Goods worth Rs.2,500 sent by H.O. to Branch and remittance of
Rs.1,200 sent by Branch to H.O. were in transit. A provision for doubtful debts is to be
raised at 2% on debtors and furniture is to be depreciated by 10%. Incorporate the branch
T.B. in H.O. books.

Problem 14: A madras Head office has an independent branch at Ahmedabad. From the
following particulars, give journal entries to close the books of the Ahmedabad Branch.
Show also the Madras Head office account in the Branch books.
Ahmedabad Branch (Trail Balance as at 31st December 2002)
Particulars Rs. Particulars Rs.
Stock on 1st Jan 2002
Purchases
Wages
Manufacturing exp.
Rent
Salaries
Debtors
General exp.
Goods recd. from H.O.
Cash at bank
8,200
12,800
6,550
3,400
1,700
5,500
4,000
2,000
7,200
750
Creditors
Sales
Head Office A/c
Discount
Purchase Returns
2,700
34,950
14,000
150
300
a. Closing stock at Branch Rs.14,350 & Rent due Rs.150.
b. The Branch Fixed Assets maintained in H.O. books were: Machinery Rs.25,000,
Furniture Rs.1,000. Depreciation is to be charged at 10% on Machinery & 15% on Furniture.
c. A remittance of Rs.4,000 made by the branch on 28th December, 2002, was received by
the H.O. on 4th January, 2003.

Problem 15: A business has three branches at Kochi, Kolkatta and Cuttack. The head
office at Chennai purchases goods and sends them to branches, to be sold at a uniform
percentage of profit on cost. The following particulars are made available to you to enable
you to prepare a combined Trading A/c for the year ended 31st March, 2002.
Particulars Chennai Kochi Kolkatta Cuttack
Stock on 1st April, 2001
Purchases in the year
Sales
Stock on 31st March, 2002
Branch A/cs on 1st April, 2001
Kochi
Kolkata
Cuttack
54,000
2,74,000
-
28,000

15,000
32,000
4,000
16,000
-
1,80,000
6,000
12,500
-
1,20,000
5,000
10,000
-
1,00,000
2,500
Remittances from branches 3,20,000 1,50,000 1,00,000 70,000
Chennai office invoices goods to the branches at fixed sales prices but maintains Branch
accounts in its ledger at cost price. Show Branch Accounts in Chennai H.O. Books.

Problem 16: A trader commenced business on 1st January, 2001 with a H.O. at Chennai
and branch at Sholapur, Purchases were made exclusively by H.O. where the goods were
processed before sale. There was no loss or wastage in processing. Only processed goods
received from H.O. were handled by the branch, and these were charged thereto at
processed cost + 10%. All sales, whether by H.O. or by the branch, were at a uniform gross
profit of 25% processing on cost. Following are the trail balances as on 31st December,
2001.
Particulars Head Office Branch
Dr. Cr. Dr. Cr.
Capital
Drawings
Purchases
Cost of processing
Sales
Goods sent to branch/received by branch
Selling and general expenses
Debtors/Creditors
Branch/Head Office current A/c
Balance at Bank
---
5,500
1,96,950
5,050
---
---
18,900
30,960
38,980
15,200
31,000
---
---
---
1,28,000
92,400
---
60,140
---
---
---
---
---
---
---
88,000
2,120
11,360
---
7,750
---
---
---
---
82,000
---
---
1,080
26,150
---
The following information is relevant:
4 Goods charged by H.O. to the branch in December, 2001, at Rs.4,400 were not received
by the branch until January, 2002. A remittance of Rs.8,430 from the branch to H.O. was
not received by H.O. until January, 2002.
4 Stock taking at the branch disclosed a shortage of goods of Rs.2,000 (at selling price)
4 Cost of unprocessed goods at H.O. on 31st December, 2001 was Rs.10,000.
You are required to prepare Trading and P & L A/c in columnar form and a combined
Balance Sheet of the business as a whole.

Problem 17: KP Ltd. manufactures a range of goods which it sells to wholesale customers
only from its head office. In addition, the H.O. transfers goods to a newly opened branch at
factory cost plus 15%. The branch then sells these goods to the general public on only cash
basis.
The selling price to wholesale customers is designed to give a factory profit which amounts
to 30% of the sales value. The selling price to the general public is designed to give a gross
margin (i.e., selling price less cost of goods from H.O.) of 30% of the sales value.
The company operates from rented premises and leases all other types of fixed assets. The
rent and hire charges for these are included in the over head costs shown in the trial
balances.
From the information given below, you are required to prepare for the year ended 31st Dec.,
1998 in columnar form.
a. A Profit & Loss account for (i) H.O. (ii) the branch (iii) the entire business.
b. A Balance Sheet as on 31st Dec., 1998 for the entire business.
H.O. Branch Branch
Rs. Rs. Rs. Rs.
Raw material purchased
Direct wages
Factory overheads
Stock on 11 98
Raw material
Finished goods
Debtors
Cash
administrative Salaries
35,000
1,08,500
39,000

1,800
13,000
37,000
22,000
13,900














9,200

1,000
4,000









Salesmens Salaries
Other administrative & selling overheads
Inter unit accounts

Capital
Sundry creditors
Provision for unrealized profit in stock
Sales
Goods sent to Branch
Goods Received from H.O.
22,500
12,500
5,000






50,000
13,000
1,200
2,00,000
46,000
6,200
2,300







44,500


2,000




65,200
3,10,200 3,10,200 67,200 67,200
Notes:
1. On 28th Dec., 1998 the branch remitted Rs.1,500 to the H.O. and this has not yet been
recorded in the H.O. books. Also on the same date, the H.O. dispatched goods to the
branch goods to the branch invoiced at Rs.1,500 and these too have not yet been entered
into the branch books. It is the company's policy to adjust items in transit in the books of the
recipient.
2. The stock of raw materials held at the H.O. on 31st Dec.,1998 was valued at Rs. 2,300.
3. You are advised that:
a. There were no stock losses incurred at the H.O. or at the branch.
b. It is the company's practice to value finished goods stock at the H.O. at factory cost.
c. There was no opening or closing stock of work- in-progress.
4. Branch employees are entitled to a bonus of Rs. 156 under a bilateral agreement.

Problem 18: AFFIX Ltd. of Calcutta has a branch at Delhi which the goods are supplied
from Calcutta but the cost there of is not recorded in the Head office books. On 31st March,
1997 the branch Balance sheet was as follows:
Liabilities Rs. Assets Rs.
Creditors Balance
Head Office




Total:
40,000
1,68,000
Debtors Balance
Building Extension A/c
closed by transfer to H.O.
A/c
Cash at Bank

Total:
2,00,000


---
8,000
2,08,000 2,08,000
During the six months ending on 30-9-1997, the following transactions took place at Delhi.
Rs. Rs.
Sales
Purchases
Wages paid
Salaries (inclusive of
advance of Rs.2,000)
General Expenses
Fire Insurance (paid for one year)
Remittance to H.O.
2,40,000
48,000
20,000

6,400
1,600
3,200
38,400
Managers Salary
Collections from Debtors
Discount allowed
Discount earned
Cash paid to Creditors
Building Account (further payment)
Cash in Hand
Cash at Bank
4,800
1,60,000
8,000
1,200
60,000
4,000
1,600
28,000
Set out the Head Office Account in Delhi books and the Branch Balance Sheet as on 30-9-
1997. Also give journal entries in the Delhi books.

Problem 19: The following Trial balances as at 31st December, 1997 have been extracted
from the books of Major Ltd. and its branch at a stage where the only adjustments requiring
to be made prior to the preparation of a Balance Sheet for the undertaking as a whole.
Particulars Head Office Branch
Dr. Cr. Dr. Cr.
Share capital
Sundry fixed assets
Sundry Current Assets
Sundry Current Liabilities
Stock Reserve, 1st Jan., 1997
(Note 2)
Revenue A/c
Branch A/c
Head Office A/c

75,125
1,21,809




31,536
1,50,000


34,567

693
43,210

18,901
23,715


(Note 3)
9,721


10,250

22,645
2,28,470 2,28,470 42,616 42,616

Notes:
1. Goods transferred from Head Office to the Branch are invoiced at cost plus 10% and both
Revenue Accounts have been prepared on the basis of the prices charged.
2. Relating to the Head Office goods held by the Branch on 1st January, 1997.
3. Includes goods received from Head Office at invoice price Rs.4,565.
4. Goods invoiced by Head Office to Branch at Rs.3,641 were in transit at 31st December,
1997, as was also a remittance of Rs.3,500 from the Branch.
5. At 31st December, 1997, the following transactions were reflected in the Head Office
books but unrecorded in the Branch books.
a. The purchase price of lorry, Rs.2,500, which reached the Branch on December 25;
b. A sum received on 30th December, 1997 from one of the Branch debtors, Rs.750.
You are required:
a. To record the foregoing in the appropriate ledger accounts in both sets of books;
b. To prepare a Balance Sheet as at 31st December, 1997 for the undertaking as a whole.

Problem 20: Fixed Assets at the branch $55,000. Life 10 years. Exchange rate at the time
of purchase on 1-1-2001 $1000 = Rs.12,500 Loan taken to purchase the Fixed Assets
$45,000 (at the rate $1000=Rs.12,500) on the same date. As on 31-12-2001 exchange rate
was $1000=Rs.13,900 as on 31-12- 2003 exchange rate was $ 1000 = Rs.16,800. Average
rates for $ 1000: 2001 Rs.12,700; 2002 Rs.14,200; 2003 Rs.15,400.
Annual loan installments $ 4,500 along with 18% interest p.a. was paid at year end every
year.

Problem 21: An Indian Company has a branch at Washington. Its Trial Balance as at 30th
September, 2003 is as follows:
Particulars Dr. Us $ Cr. Us $
Plant & Machinery
Furniture & Fixtures
Stock on Oct.1st, 2002
Purchases
Sales
Goods from Indian Co. (H.O)
Wages
Carriage inward
1,20,000
8,000
56,000
2,40,000
---
80,000
2,000
1,000
---
---
---
---
4,16,000
---
---
---
Salaries
Rent, rates and taxes
Insurance
Trade Expenses
Head Office A/c
Trade Debtors
Trade Creditors
Cash at Bank
Cash in Hand
6,000
2,000
1,000
1,000
---
24,000
---
5,000
1,000
---
---
---
---
1,14,000
---
17,000
---
---
5,47,000 5,47,000
The following further information is given:
a. Wages outstanding $ 1,000
b. Depreciate Plant & Machinery and Furniture & Fixtures @ 10 Per cent p.a.
c. The H.O. sent goods to Branch for Rs. 39,40,000
d. The H.O. shows an amount of Rs. 43,00,000 due from Branch
e. Stock on 30th September, 2003-$ 52,000
f. There were no in transit items either at the start or at the end of the year.
Exchange rates:
a. On 1st September 2001 when the fixed assets were purchased, the rate of exchange
was Rs.38 to one $.
b. On 1st October, 2002 the rate was Rs.39 to one $.
c. On 30th September, 2003 the rate was Rs.41 to one $.
d. Average rate during the year was Rs.40 to one $.
You are asked to prepare (a) Trial Balance incorporating adjustments given above,
converting dollars into rupees, (b) Trading and P & L A/c for the year ended 30.9.2003 and
Balance sheet as on that date.

Problem 22: London Branch of Delhi Export House sent the following T.B. as on
31.12.2001.
Particulars Dr. Cr.
Fixed assets
Loan (taken to purchase
of fixed assets)
Depreciation
Stock 1-1-2001
Goods from H.O.
Sales
Salaries & Wages
Interest
Cash & Bank
Debtors
H.O. Account
17,500


2,500
8,200
58,800

15,200
2,880
1,700
21,200


13,000



1,05,200




9,780
Fixed assets were purchased on 1-1-99 when 1 = 25.50, life was estimated to be 10
years. To finance the fixed asset a loan amounting to .22,000 was taken @ 18% interest
p.a. Annual loan installment of 3,000 and interest were payable in every December.
Exchange Rates are as follows:
Average of 1999
On 31.12.1999
Average of 2000
1 = Rs. 25.70
1 = Rs. 26.10
1 = Rs. 26.20
On 31.12.2000
Average of 2001
On 31.12.2001
1 = Rs. 26.40
1 = Rs. 36.50
1 = Rs. 42.20
In the Head Office books London Branch A/c appeared as follows:
London Branch A/c
Particulars Rs. Particulars Rs.
To Balance b/d
To goods
To P&L A/c
Exchange gain
7,000
58,800
-
-
1,84,800
21,46,200
1,26,446
By Bank
By Balance
56,020
9,780
20,44,730
4,12,716
Closing Stock: 2,400.
You are required to show Branch fixed assets A/c., Branch Loan A/c., Branch Trail balance
in Rupee terms, Branch P & L A/c, Adjustment Entries to incorporate branch balances in the
H.O. Books.